An Audit Office report has revealed serious weaknesses in the tax supervision of entertainment venues in Larnaca’s Mackenzie Beach area, highlighting a web of omissions, delays and inconsistencies that have left state revenue exposed.
According to the findings, for over a decade the Tax Department delayed updating its interpretation of the reduced VAT rate for dining establishments, despite rulings by the Administrative Court and legal opinions confirming that the presence of a kitchen is not a prerequisite for applying the lower rate. The relevant circular was finally issued in 2022- three years late.
The audit also uncovered unequal tax treatment among similar businesses in the same area. In some cases, venues operating as restaurants at night were charged reduced VAT, while others were taxed at the standard rate, creating conditions of unfair competition.
Even more concerning were the findings of insufficient auditing activity. Many businesses were taxed “based on declaration” without further inspection, even when previous violations had been recorded. Companies whose auditors issued qualified or emphasis-of-matter opinions were not examined further, while large staff and management expenses were accepted without cross-checking against employer declarations or Social Insurance data.
The report pays special attention to artistic events held in 2022–2023, where dozens of concerts by well-known performers at Mackenzie Beach were found to have taken place without corresponding payment of artist tax or VAT. In one company (“Company B”), no related tax income was detected at all, while the Department had not received the legally required notifications of such events.
One of the most striking cases involved a business previously found to have “black funds” and a power cut during inspection — yet the Tax Fraud Investigation Unit was never involved. In another case, VAT estimates were made using “conservative assumptions” that significantly underestimated taxable amounts.
Auditor General Andreas Papaconstantinou noted the Tax Department’s “lenient approach” and called for a complete overhaul of its audit procedures, with risk-based assessment, direct involvement of the Fraud Unit, and ongoing staff training. He stressed that the upcoming tax reform must give the Department the tools to “enforce the law strictly and combat tax evasion to the fullest extent.”
The Audit Office warns that without targeted audits, cross-checks and uniform interpretation of legislation, the state risks losing substantial tax revenue, while the legality of tourism and leisure operations remains in question.
🔗 Read the full Audit Office report here (please note, the report is in Greek)
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